🔖Price tags: An economic innovation whose time may be up

From the invention of money until pretty recently, there were no fixed prices: Sellers and buyers haggled over every transaction. Then, in the mid-19th century, Quakers and other Christians in the US challenged an age-old system—they thought charging different prices depending on the buyer was immoral, dishonest, and greedy. If all people are equal before God, shouldn’t everyone pay the same prices? Merchants began affixing firm price tags to their wares—a practice that was met first with suspicion, but quickly became popular for its fairness and efficiency. Sometimes you just want to buy your oats and get out, without all that time-consuming haggling, not to mention the sneaky feeling that you actually might have overpaid. Fast-forward a century and a half, and it looks like fixed prices might be an historical aberration. Have you purchased an airline ticket recently, or anything on Amazon, or taken an Uber? Then it’s a certainty that an algorithm helped set a dynamic price that optimized the seller’s profits. And in the near future, sellers will be able to set a price that doesn’t just change over time, but based on your personal information and preferences. That may feel very wrong—but then again, so did price tags once upon a time. 🌐 [View this email on the web]( [Quartz Obsession] Price tags May 11, 2018 Sticker shock --------------------------------------------------------------- From the invention of money until pretty recently, there were no fixed prices: Sellers and buyers haggled over every transaction. Then, in the mid-19th century, Quakers and other Christians in the US challenged an age-old system—they thought charging different prices depending on the buyer was immoral, dishonest, and greedy. If all people are equal before God, shouldn’t everyone pay the same prices? Merchants began affixing firm price tags to their wares—a practice that was met first with suspicion, but quickly became popular for its fairness and efficiency. Sometimes you just want to buy your oats and get out, without all that time-consuming haggling, not to mention the sneaky feeling that you actually might have overpaid. Fast-forward a century and a half, and it looks like fixed prices might be an historical aberration. Have you purchased an airline ticket recently, or anything on Amazon, or taken an Uber? Then it’s a certainty that an algorithm helped set a dynamic price that optimized the seller’s profits. And in the near future, sellers will be able to set a price that doesn’t just change over time, but based on your personal information and preferences. That may feel very wrong—but then again, so did price tags once upon a time. 🌐 [View this email on the web]( AP Photo/Ric Feld By the digits [5 cents:]( Price of a bottle of Coke for 70 years, starting in 1886 [1,275 percent:]( Average markup of movie theater popcorn [20-30%:]( Premium that Orbitz charged Mac computer users for a hotel room, based on their perceived willingness to pay [400%:]( Amount Uber fares surged during the 2017 tube strike in London [3x:]( Factor above which people start to find price increases psychologically intolerable [$2,000:]( Price of the Guinness World Records’ most expensive burger ever sold [$2,000:]( Price of Harvard tuition 50 years ago [$23,698,655.93:]( Algorithm-driven Amazon price tag for an out-of-print book about flies 🐦 [Tweet this]( Brief history Pricing innovations --------------------------------------------------------------- [1681:]( John Wanamaker opens a revolutionary department store in Philadelphia, featuring price tags among other retail innovations—like customer satisfaction polls, returnable purchases, and ad copywriting—that will define the American marketplace for years to come. (Wanamaker, though a devout Christian, wasn’t a Quaker.) [1683:]( Japanese merchant Takatoshi Mitsui opens a textile store in Tokyo, selling pre-made goods on an innovative fixed-price basis. The Mitsui group today is one of Japan’s largest conglomerates, with holdings including Sapporo Breweries. [1858:]( An enterprising young Quaker, Rowland Hussey Macy, took the fixed price idea to New York City. Price tags allowed Macy to sell on a larger scale than individual haggling would have ever allowed: An empire is born. [1976:]( American Airlines introduces yield-management techniques that adjust ticket prices based on predicted demand trends—“selling the right seat to the right customer at the right time”—which accelerated when US airlines were deregulated in 1979. [1999:]( Coca-Cola chairman Douglas Ivester suggests vending machines that increase prices when the temperature rises; a tsunami of customer outrage quickly kills the idea. [2011:]( The ride-hailing service Uber launches in San Francisco with “surge pricing” at times of high demand. “Because this is so new, it’s going to take some time for folks to accept it,” says founder Travis Kalanick—but by 2016, the company [abandons surge warnings]( and merely shows customers the projected price of their ride. Quotable “Price is what you pay. Value is what you get.” — [Warren Buffett]( Giphy fun fact! Price tags were groundbreaking, but how to affix them? Merchants started off just using string, until a company named Dennison came up with a gun that fired the now-ubiquitous T-shaped plastic tags through clothing and other items. [The Swiftach fastener system]( was introduced in 1969, and the company—now AveryDennison—sells about 5 billion of them a year. Reuters/Lucy Nicholson Pop quiz How much did a Big Mac cost in 1955? $0.49$0.19$0.09$0.99 Correct. Incorrect. If your inbox doesn’t support this quiz, find the solution at bottom of email. The way we 💸 now The dynamic age --------------------------------------------------------------- We have Uber to thank (or curse) for making “dynamic pricing” a modern-day phenomenon. “Surge pricing”—where a ride costs more at times of high demand—is annoying, and can sometimes seems to boil down to price gouging, but it offers [what James Surowiecki in MIT Technology Review calls]( “the most economically sensible, and useful, example of dynamic pricing in today’s economy.” Dynamic pricing has been a trick of the airline, hotel, and entertainment industries for years: Fares, rates, and event ticket prices are commonly set according to predicted demand. In the 1980s, American Airlines envisioned it as a way to [go toe-to-toe with discount airlines](. Crucially, the airline described advance-purchase Super Saver tickets as a discount, rather than a price-hike on last-minute purchases, though they’re effectively the same thing. As technology has made it easier to adjust prices in real time and segment the market, dynamic pricing has started spreading to other industries. Utility companies are starting to use it with electric power to [prevent blackouts]( at times of high demand. This year, US movie theater chain Regal Cinemas is set to start [experimenting with dynamic pricing]( in several markets, charging more for tickets during peak times and less when crowds are lighter; and [supermarkets in the UK]( are experimenting with dynamic prices for products like fresh bread, to both lift profit and prevent food waste. Watch this! One problem with a haggle-based retail system? It took shop proprietors years to train help, according to Planet Money’s history of the price tag. Extra dynamic! How your 🍪s set your price --------------------------------------------------------------- At a time of angst about the troves of exposed personal online data, it’s not too big of a leap to imagine that retailers could soon set a special price just for you—and not necessarily in a good way. Staples has changed prices for online customers [based on whether there are brick-and-mortar rivals nearby]( while Office Depot [uses customers’ web browsing history]( to “personalize the experience of a visitor to its website.” [Travel Weekly]( reports that some airlines have already implemented this type of ultra-dynamic pricing by using “an individual’s flight-shopping history to generate a person-specific fare offer that differs from the offer some other shoppers might get for the same fare inquiry at the same time.” The future of pricing, in other words, is getting a lot more personal: [at the Guardian, Tim Adams writes]( “If you are an impulse buyer, or a full-price shopper or a bargain hunter, online retailers are increasingly likely to see you coming. Not only that: there is evidence to suggest that calculations about what you will be prepared to pay for a given product are made from knowledge of your postcode, who your friends are, what your credit rating looks like and any of the thousands of other data points you have left behind as cookie crumbs in your browsing history.” Giphy The man who beat “The Price Is Right” --------------------------------------------------------------- The US game show that asks contestants to guess the price of everyday items has been around since 1956, but nobody ever fully beat it until 2008. That’s when a man named Terry Kneiss, who had [spent years methodically memorizing prices]( and figuring out how the show worked, guess the exact amount of the “Showcase Showdown”—$23,743 for an assortment of prizes. AP Photo/David Duprey poll What do you think is the fairest pricing structure? [Click here to vote]( Everybody should pay the same priceDemand-based pricing sometimes makes senseReady for things to get extremely personal 🔥burning questions In response to this week’s email about [electric scooters]( Gregg wrote: “I’ve often wondered how/where/when dockless electric scooters get recharged. Can you shed any light on this subject?” Quartz’s tech reporter Mike Murphy replies: Scooter startups actually compensate people who bring them into their homes to recharge them. There could be a bit of a concern with people bringing home multiple scooters to charge from one outlet, because some of the companies wouldn’t confirm to us that their batteries have been through the rigorous safety testing that products sold in the US are supposed to go through. Hopefully we don’t see a repeat [of the hoverboard]( 🔥 sound off ✏️ [What did you think of today’s email?](mailto:obsession%2Bfeedback@qz.com?cc=&subject=Thoughts%20about%20price%20tags.%20&body=) 💡 [What should we obsess over next?](mailto:obsession%2Bideas@qz.com?cc=&subject=Obsess%20over%20this%20next.&body=) 🤔 [What have you been obsessed with this week?](mailto:obsession%2Bprompt@qz.com?cc=&subject=%0ATake%20us%20down%20a%20rabbit%20hole.%20&body=) 📬 [Forward this email to a friend](mailto:replace_with_friends_email@qz.com?cc=obsession%2Bforward@qz.com&subject=%F0%9F%94%96Price%20tags%3A%20An%20economic%20innovation%20whose%20time%20may%20be%20up.%20&body=Thought%20you%27d%20enjoy.%20%0A%0ARead%20it%20here%20http%3A%2F%2Fqz.com%2Femail%2Fquartz-obsession%2F1275798%2F%0ASign%20up%20for%20the%20newsletter%20at%20http%3A%2F%2Fqz.com%2Fquartz-obsession) The fine print In yesterday’s poll about [earworms]( 52% of you said “hair of the dog is the best cure” for it, while 34% said earworms are for crazy people. 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